Connect for Intermediaries CEO, Liz Syms, talks to Property Reporter this week about ‘Funding for developments and refurbishments and the benefit of permitted development rights for property investors.’
Permitted development rights were due to end in May of this year but have now been made permanent by the Government.
Permitted development rights are where you can do a range of things to your property, such as extend, but without the need to seek planning permission. Using these rights removes time delays and complications, making it easier for you to add value to the property.
There are, however, some restrictions. For example, the extension cannot exceed eight metres from the main building for a detached property and six meters for other property types, based on the property as it stood in 1948!
Conversion of non-residential dwellings, e.g. offices into residential dwellings can be classed as permitted development.
Why are some property investors taking advantage?
There are mounting pressures on investors income streams due to the raft of buy-to-let (BTL) changes, so you may wish to seek other ways to continue to make money from property. For example, extending a property to add another bedroom could help you convert a property into a successful house in multiple occupancy (HMO), increasing both the property value and the rental income yield at the same time.
We have also seen some investors purchase a freehold property, consisting of an office on the ground floor and flats above. You can use permitted development rights to convert the office into a residential flat and create long leases on each of the flats to refinance or sell on at a profit.
It is important that you speak with a mortgage adviser specialising in this area to consider the most suitable way to finance these types of transactions. The finance type used will vary dependant on the plans for the property.
Plans for a simple extension to increase the property size may be acceptable for standard BTL lenders, but plans to extend and convert the property into a HMO may not be acceptable, and bridge finance in the interim may need to be considered instead.
You may have a more complicated development, needing specialist development funding. This could be the case, for example, when a roof is taken off to create another floor on the property. More development lenders have entered the market over recent times, offering attractive terms.
One issue is the guarantee of the value of the property at the end of the project. If a property is reliant on the end value to capital raise for the next project, the uncertainty of valuations in the current market could cause an issue.
It is good, therefore, to see new lenders’ products in the market that can offer a guaranteed exit from their bridge finance product onto their term BTL product.
The lender will value the property at the outset based on its current condition. They will also provide a valuation of what the property value will be post works, based on the schedule of works provided by the investor. Permitted development work can also be included. You will know in advance the end value and exactly how much you will be able to capital raise.
Two offers will then be issued at the same time. One for the bridge loan and one for the BTL mortgage. This means the underwriting for the BTL is done at the same time as the bridge and the BTL offer is valid for 6 months. As soon as the work is done, you can complete with the BTL offer releasing your capital, ready to go again!
You can see the article on Property Reporter here,